Is Now the Time to Buy Imperial Tobacco?

I'm always searching for shares that can help ordinary investors like you make money from the stock market. So right now I am trawling through the FTSE 100 (UKX) and giving my verdict on every member of the blue-chip index. Simply put, I'm hoping to pinpoint the very best buying opportunities in today's uncertain market.

Today I am looking at Imperial Tobacco (ISE: IMT.L) (NASDAQOTH: ITYBY.PK) to determine whether you should consider buying the shares at 2,300 pence. The average analyst estimate for this year's earnings per share is 199.6 pence (6.2% growth) and a dividend per share of 104.6 pence (10% growth). Trading on a projected P/E of 11.5, Imperial appears cheap compared with its only London-listed competitor, British American Tobacco, which has a projected P/E of 15.9.

Imperial's low P/E and slowing growth give a PEG ratio of 1.91, which implies Imperial's share price is expensive for the earnings growth the firm is expected to produce. The dividend is strong, boasting a 4.4% yield, which is currently larger than the income from BAT -- with a three-year compounded average dividend increase of 14.7%. The dividend is also twice covered, giving Imperial room for further payout growth. Imperial returned 1.5 billion pounds to shareholders through buybacks and dividends during 2012, and, during the past 10 years, an investment in Imperial has returned more than 150%!

Imperial looks cheap. What about future revenues?

Changing tobacco habits and regulation throughout the world continue to chip away at Imperial's cigarette volumes, though sales have been bolstered by ongoing price increases. Indeed, Imperial is expected to announce a 3% drop in volumes, but a 4% increase in revenues, within its year-end results at the end of October.

The predicted performance is down mostly to the company's product strategy; Imperial is a world leader in the high-margin premium-cigar market and the rolling-tobacco market, giving Imperial more room for product price increases.

At this point I should mention that the tobacco sector has seen many acquisitions over time, and I would not rule out seeing Imperial become prey to a larger rival, thereby providing potential capital growth and possible downside protection. While other investors may have their doubts about Imperial, looking at past performance and the recent share-price weakness, I do not.

Growth is slowing, but Imperial still has the resources to significantly improve shareholder returns. The tobacco industry has faced many challenges over the past decade, yet Imperial has still managed to significantly outperform the wider stock market. Overall, I believe now looks to be a good time to buy Imperial Tobacco at 2,300 pence.